Gas Price Season: California, Here We Come

People pay a pretty penny for gasoline in the Golden State, so when gas prices are on the rise the media frequently point to California as the highest cost per gallon.

“Let me show you what is the most expensive gasoline location in the country. A gallon of unleaded in California right now going for $3.08 a gallon,” said NBC reporter Tom Costello during the March 12 “Nightly News.”

“Sixty bucks! That’s ridiculous,” said one woman filling up her gas tank, on ABC’s “World News with Charles Gibson” March 12. Her comment was aired immediately after reporter Dean Reynolds said San Francisco is seeing “almost a buck” higher gas prices than the least expensive city in the rest of the country.

Another gas station customer told NBC’s “Today” on March 18 what he thinks is jacking up prices: “I don’t understand it. I think it’s – it’s just a ploy by the oil companies.”

’Tis the season, as gas providers make the switch from winter fuel blends to summer ones. And as prices begin to rise with more driving, the media are fueling up for another summer of hype. In the summer of 2006, the media couldn’t stop talking about gas prices, especially in California.

“The Energy Department says gasoline is up 2 cents in the past week to a nationwide average of $2.89 a gallon. In California it’s a whole lot higher - $3.27,” said “CBS Evening News” anchor Russ Mitchell on June 5, 2006.

Reporter Sandra Hughes followed, reporting that California’s high prices were being investigated by the state attorney general, who “began hauling the CEOs of major oil companies into his office today, demanding in closed-door sessions that those executives tell him, under oath, why gas prices are higher here than almost anywhere else in the nation.”

The media should have been able to dig up the answer for the California attorney general: higher taxes and more regulation on top of laws of supply and demand. Though the media love to use the state to hype gasoline prices, networks rarely report on the government intervention that helps keep California’s costs among the highest in the country.

The price of gasoline is a complex intersection of many factors in addition to volatile supply and demand. Prices are affected by storms, pipeline shutdowns, fires, global unrest, and the seasonally mandated switch from winter to summer fuel blends.

But the less-talked-about chunk of consumers’ costs is taxes on every gallon of gasoline that go to local, state and federal governments.

Go West Young Man, for Higher Taxes

One reason for California’s consistently higher prices at the pump is higher gasoline excise taxes.

In 2005, for every gallon of gas U.S. consumers paid on average 45.9 cents in local, state and federal taxes, according to the Tax Foundation. But in that same year, Californians paid almost 30 percent more – 60 cents per gallon in taxes.

The CBS “Early Show” actually explained the effect of taxation on May 24, 2006, because some politicians were discussing cutting or eliminating them.

“In a time of high prices, gas taxes can really bite into an average motorist’s budget … The highest state gas taxes are nearly 50 cents a gallon in New York, and about 42 cents a gallon in California. Add in the across-the-board 18-cent-a-gallon federal tax …” said CBS correspondent Vince Gonzales.

Gonzales also asked where all that revenue goes and found an interesting answer. “In many states like California, it’s supposed to go for new roads and bridges. But in recent years, the taxes have gone to fill holes in state budgets.”

But Gonzales’ report was the exception to the rule. Most network reports sounded more like NBC’s “Today” on May 9, 2006.

“A lot of drivers still feel like Pac-Man is eating their wallets,” said host Matt Lauer. “According to AAA, the nationwide average price for regular unleaded gasoline is holding at $2.90 a gallon … in California, the statewide price per gallon actually rose to a record of $3.36. Some places in Los Angeles are higher, up to $3.46 for self-serve regular gas.”

“Green” Regulation Costs You Green at the Pump

On top of the second-highest gasoline excise taxes in the country (after New York state), California also has the strictest environmental regulations in the country, which pump up fuel costs.

“The State of California operates its own reformulated gasoline program with more stringent requirements than Federally-mandated clean gasolines,” according to the federal Energy Information Administration.

This means that when all of the state’s refineries are not operating at full capacity, the “supply may become very tight and the prices soar.”

Brian P. Simpson, an assistant professor of economics at National University, explained a number of California’s regulations in Capitalism Magazine February 2005.

On top of requiring special blends, Simpson said California reduced the supply of gasoline by banning the additive methyl tertiary butyl ether (MTBE) and heaped costs on gas stations when the state required them to install double-walled underground tanks.

The March 18 “Today” on NBC featured a story focused on the very expensive gasoline prices in Southern California. In that report, Peter Alexander mentioned California’s “toughest clean fuel regulations” in passing, but did not explain the effect on the state’s gas prices. Still, mentioning regulation at all in gas prices stories was unusual for the media.

“Today” left regulation entirely out of the story on March 13, citing “greater demand, refinery shutdowns and some concerns over shortages.”

Windfall Profits – for the Government

Now that gasoline prices are on the rise again, media chatter over “soaring” prices is likely to continue. And complaints of “excessive” oil company profits are already surfacing.

Higher gas prices had Dean Reynolds of ABC wondering on March 12. “[A]ll of this leads to questions about oil company profiteering,” said the reporter during “World News.” But a resounding “No” came from energy analyst Bill Paul, who told viewers that companies are only “charging what the market will bear” and are not profiteering.

While oil companies may profit greatly, they also pay taxes – an average of 39 percent, compared to a 33-percent tax rate for other industries. “[O]il companies have paid in taxes more than three times what they earned in profits” between 1977 and 2004, according to Jonathan Williams of the Tax Foundation.

Governments receive a windfall of profits from oil revenue – $158 billion from Chevron, ConocoPhillips, and Exxon Mobil payments in 2005 alone. On top of that, the government collects taxes directly from consumers on every gallon of gasoline sold.

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